Hot Spots in Accounting

Auditor Disclosure

A recent rule requires auditing firms to include signatures of the audit engagement partners and names of other involved firms on the auditing report.  It’s been met with some resistance since the name of the firm carries a reputation with it which could enhance or decrease the credibility in the audit report and/or financial statements that investors read.  (See https://www.accountingweb.com/aa/auditing/pcaob-adopts-new-rules-on-naming-audit-engagement-partner)

Responsibility Accounting: Good or Bad?

Responsibility accounting is a networking system that businesses use to delegate assignments to managers in subsystems to make goals and be held accountable for specific costs and revenues.  Some advocate this method because it allows specialization, more accountability on the manager, more motivation, etc.  Others argue that this method “promotes subsystem optimization” and therefore prevents “inter-functional cooperation.” (See number 6 in https://maaw.info/ArticleSummaries/ArtSumMartin94.htm)

           

Earnings Management vs. Earnings Manipulation

Many decisions are based on the reported accounting numbers, including whether or not an investor decides to invest in the company.  Therefore, managers have various motivations and incentive to manage the earnings reported on the financial statements.  Some of the financial accounting is left to the say of the accountant, which allows for earnings management.  However, there’s a difference between earnings management and earnings manipulation—that is, ethical strategic timing versus fraud.  But where do you draw the line?  (See https://smallbusiness.chron.com/ethical-issues-facing-accounting-profession-18307.html)

I’m most opinionated about this third topic.  Accounting is the “language of business” which makes the financial statements a sort of medium not only for internal purposes but it serves as a link between the company and investors.  A lot depends on the numbers reported, so I see where the motive comes to manage the numbers to the company’s benefit.  However, I value integrity more than these other incentives, and I think accountants can be strategic in their reporting without being deceptive.